Offset mortgage is the new savings account

According to uSwitch, an offset mortgage is being seen by many as the new savings account.

Now that the Bank of England base rate has been cut to 0.5%, savings accounts are no longer providing the return that people are looking for.

Interest rates on savings accounts are heading towards 0% and it means people are really searching for an alternative way of getting a decent return on their money. An offset mortgage is coming into its own.

Personal Finance product manager at uSwitch.com, Louise Bond, said ‘Unlike overpaying, offsetting allows consumers to access their savings at any time. For people that are nervous about the current financial situation, this could offer the most lucrative and safest alternative to a low rate savings accout.’

She added ‘Despite popular belief, you do not have to have a high savings balance to benefit from offsetting. As long as you have a mortgage rate that is higher than your savings rate after tax, you will be quids in by offsetting for as a little as one year. In addition, you will have the added security of being able to access the savings at any time unlike making overpayments.’

Those with tracker mortgages have seen mortgage rates drop by 4.5% over the last 6 months making the average interest rate now 1.32%.

Significant savings have therefore been made on these tracker mortgages and if the money isn’t needed for other day to day expensives the money saved could potentially be used to overpay or offset against mortgage interest.

Unlike with a standard savings account, money which is offset against a mortgage is not open to the tax man.